Court Says Investor Must Arbitrate Claims Against Broad Street Securities, Pershing LLC, and Bank of New York Mellon Over Contract Alterations

The U.S. District Court for the Eastern District of Michigan has concluded that Mouayad Shammami, an investor that is accusing brokerage firm Broad Street Securities Inc. of fraudulently inducing him to change his investment goals, must arbitrate this dispute rather than pursue the matter through the courts.

In 2004, Shammami entered into an agreement with Broad Street stating that the brokerage firm would give him investment and management advice. Broad Street and clearing broker Pershing LLC had their own agreement between them that allowed Broad Street to ask Pershing to trade securities for Shammami. Shammami and Pershing entered into a marginal agreement in 2005, which contained a pre-dispute arbitration clause.

In 2007, Shammami filed a lawsuit alleging that Broad Street and Pershing traded securities and churned his account without honoring his stated investment goals. Pershing and its parent company Bank of New York Mellon LLC filed a motion to have the case dismissed. Per the terms of the agreement with Shammami, both firms wanted to resolve the dispute in arbitration.

In its opinion, the court said that there was “no allegation” that Shammami was fraudulently induced into agreeing to the arbitration provision, which was included in its contract with Pershing LLC.

As a result, even if the charges applied to the margin agreement, they would be applicable to the entire contract and therefore must be dealt with in arbitration.